Let the sun shine

The future is bright for solar power, even as subsidies are withdrawn

FORTY-FIVE minutes west of Las Vegas, dejected sinners may encounter a sight to lift their sunken hearts: a sea of 347,000 mirrors, reflecting the rays of the desert sun on to boilers mounted on three 460-foot towers. The Ivanpah solar-thermal plant (pictured), which opened in mid-February, is the largest of its kind in the world. Fully ramped up, it will deliver around 377 megawatts (MW) of power to 140,000 homes in southern California. Its backers compare it to the nearby Hoover Dam; an astronaut claims to have spotted it from the international space station. It is a striking sight, even if the heat from its heliostats has roasted dozens of unfortunate birds alive.

Though dazzling, Ivanpah and large plants like it will not generate much of this growth. The federal loan guarantees that allowed their creation have expired. More important are photovoltaic solar cells, a rival technology that converts sunlight directly to electricity. Their cost has fallen so quickly that in many places retail electricity customers are saving money by placing panels on top of their houses or businesses; 200,000 have done so in the past two years. And there is a lot of room to grow. “There's no market saturation in any state; not even close,” says Lyndon Rive of SolarCity, a solar-installation firm. Even David Crane, the boss of NRG, co-owner of Ivanpah, says that photovoltaic installations are the future.

Last year sun-soaked California accounted for over half of America's new photovoltaic installations. That, say solar fans, shows that the sector can thrive even after it loses its subsidies. (The $2.2 billion California Solar Initiative, which gave cash to homes or firms that went solar, has largely expired.) Solar is also blossoming in unexpected places like Massachusetts and North Carolina.

A bigger test will come in 2017, when the federal government's solar-investment tax credit drops from 30% to 10% (unless Mr Obama can convince Congress otherwise). Still, says Shayle Kann at GTM, this will be no “death knell”; it will simply eliminate some marginal projects. And by then there may be a revival of Ivanpah-style solar-thermal plants, as energy-storage technologies improve and utility firms look to them to provide steady power throughout the day.

Yet even if solar power is a boon to consumers, it threatens some utilities. Energy has traditionally been generated centrally, distributed over power lines and sold to consumers. Distributed solar power—generated from rooftop panels—undermines that model (see article). The Edison Electric Institute (EEI), a trade group, warns that distributed generation could do to energy companies what the internet did to newspapers.

Bet your bottom dollar

Regulations are adapting to this shift: all but seven states have adopted net-metering policies, which credit solar-enabled homes and businesses for the excess energy they feed back into the grid. At least 22 states allow consumers to buy the electricity produced by solar panels that a third party installs on their homes. This lets people take advantage of solar's savings without having to pay the hefty up-front installation costs. In 2013, third-party-owned systems accounted for most solar installations in California, Arizona, Colorado and Massachusetts.

Some utilities grumble that customers who benefit from net metering escape the costs of maintaining the grid they depend on. Last year Arizona Public Service, the state's biggest electric firm, urged regulators to slash the savings that new solar customers would derive from net metering. After a fierce campaign their call was rejected, though the regulator approved a small solar surcharge. Georgia Power also proposed a fat tariff; it too was defeated.

Julia Hamm of the Solar Electric Power Association identifies three ways regulators could help utilities cope with these changes. First, they could demand monthly infrastructure fees from solar users. Second, they could list every component of value separately rather than wrapping the cost of infrastructure maintenance, for instance, into usage charges. Third, they could split energy used and consumed into separate transactions, meaning that a solar customer sells all his energy to a utility before buying what he needs.

Yet those last two proposals leave unanswered the question of what rate utilities should pay customers for their power—or more broadly, what the price of solar, with all externalities factored in, ought to be. And more battles loom; California's regulator must make an important decision on net metering this month. Further ahead the growth of distributed solar will pose other threats to the utilities' traditional business model. “Net metering is just the pointy edge of the wedge,” says Adam Browning of Vote Solar, an advocacy group.

Still, while user-generated solar power makes utilities skittish, many have rushed to embrace it on the supply side. In 2013 they installed roughly 4,100MW of solar capacity, up from 2,390MW in 2012. Renewable portfolio standards, which in 30 states force utilities to generate a certain share of their electricity from clean sources, are part of the reason. But so is hard economics: low installation and labour costs, clean power delivery at peak midday hours and a hedge against fuel-price volatility.

Many of these gains have already been banked. Photovoltaic modules have become slightly dearer lately; costs will rise further if the Commerce Department heeds protectionist calls by some domestic manufacturers and expands tariffs on imports from China and Taiwan. Yet solar firms are not short of ideas to cut costs elsewhere: third-party financing, for example, or securitising pools of solar leases to reduce financing costs. For makers and users of solar power, the future looks bright.